The Linux Foundation | 02 March 2023
Digital wallets have emerged as a key component of the digital revolution that has transformed the landscape of transactions. They enable users to store and manage payment and personal information (such as credit cards, health and government-issued ID cards, airline tickets, and sports and entertainment venue tickets) on their smartphones and wearable devices with enhanced convenience, improved security, and greater control over their finances and data. However, as digital wallets become more prevalent, they also pose significant challenges to the security and management of digital identities and their impact on privacy and personal data.
In recent years, digital wallets have become increasingly popular. According to a 2022 FIS Worldpay report, in 2021, the value of all digital wallet transactions came to an astounding U.S. $15.9 trillion. By 2025, digital wallets will likely be even more popular, and they are used by billions of people every day.
Several factors drive this growth, including the increasing adoption of smartphones, the growing popularity of mobile payments, and the shift toward contactless payments in the wake of the COVID-19 pandemic.
Despite the growth of the digital wallet market, many challenges still need to be addressed. One of the biggest challenges is interoperability between different digital wallet systems. If you have a digital wallet from one provider, you may be unable to use it to purchase from a merchant that accepts digital wallets. This lack of interoperability can create a fragmented digital wallet ecosystem.
The challenges faced by digital wallets today
The Linux Foundation recently published a report titled Why the World Needs an Open Source Digital Wallet Right Now, highlighting the drawbacks of today's digital wallets and why an open source digital wallet is needed.
Here are the challenges the report identifies:
- Vendor lock-in with no interoperability: Nearly all digital wallets are tethered to a single bank, payment system, merchant, company, region, nation, or cryptocurrency exchange. Moving assets, credentials, or data to a different wallet is difficult or impossible. Without any interoperability, we need a separate wallet for every function.
- Questionable security: Wallet developers work hard to keep ahead of cybercriminals but sometimes lose the race. Hackers use various techniques to attack digital wallets; everyone else loses when they succeed. Cryptocurrency crime was U.S. $14 billion in 2021, with all these crimes involving digital wallets. E-commerce fraud will likely total U.S. $41 billion in 2022 and rise to U.S. $48 billion in 2023, with much of this committed via digital wallets.
- Intrusive business models: Digital wallets collect valuable data on consumer behavior, which can be sold to third parties without the users' knowledge or consent. Wallets can also extract fees from transactions, even if hidden, consumers pay higher prices for everything they buy.
- Black-box design: The lack of transparency in digital wallets is concerning. The organization that developed the wallet can only fix or add bugs and features, limiting innovation and growth. Users need help seeing how a product works, whether it is good, or whether they can trust it.
- Limited capabilities: Most digital wallets perform just one function, whether it's payments, identity, or access. Users need different wallets for different functions, making it difficult to manage multiple wallets.
The report concludes that with these drawbacks, today's digital wallets are not ready for prime time. The world needs an open source digital wallet that is interoperable, secure, transparent, and versatile.
Why open source digital wallets are the answer
An open source digital wallet would solve many problems plaguing existing wallets. It would allow users to choose their bank, payment system, merchant, company, region, nation, or cryptocurrency exchange without being tied to a specific wallet. It would also increase security by allowing anyone to view and audit the code, making it more difficult for hackers to exploit vulnerabilities.
With an open source digital wallet, users would have more control over their personal data and could be confident that their privacy is being protected. An open source digital wallet could also enable innovative business models that benefit users rather than extracting fees and selling data.
Lastly, an open source digital wallet would have unlimited capabilities, allowing users to perform all three functions of payments, identity, and access in one wallet. Users would no longer need to manage multiple wallets, making their lives easier and more efficient.
An open source digital wallet is needed now more than ever. With its interoperability, security, transparency, versatility, and unlimited capabilities, an open source digital wallet could revolutionize how we manage our finances and personal data. It's time to say goodbye to the drawbacks of existing digital wallets and embrace a better future with an open source digital wallet.
Enter the OpenWallet Foundation (OWF)
A new initiative called the OpenWallet Foundation has been launched to address this challenge. The OpenWallet Foundation is a non-profit organization that aims to promote using open source software for digital wallets. The foundation aims to create a standardized platform for different digital wallet providers to ensure interoperability and a more seamless user experience.
The OpenWallet Foundation was officially launched in an interactive launch webinar that took place in February 2023. The event featured board members and representatives from various organizations who shared their thoughts on the importance of digital wallets and open source software and the need for collaboration and trust.
David Treat, Senior Managing Director at Accenture, highlighted the importance of security and end-users in developing digital wallets. He stated that digital wallets are becoming essential as browsers in the digital ecosystem, and successful digital businesses will establish direct relationships with users through these wallets. Users are expected to gain greater control, privacy, and security, essential for building trust.
Another speaker at the event was Wenjing Chu from Futurewei, who emphasized the importance of high-quality open source software components for digital wallets. Chu stated that open source software could lead to better cost efficiency, shorter time to market, greater interoperability, and ultimately benefit users in terms of security, privacy, and simplicity. Through collaboration and sharing, the OpenWallet Foundation aims to create a healthy community-driven development process that benefits everyone.
How OWF will create the infrastructure for digital wallets of the future
The OpenWallet Foundation is an umbrella project of LF Europe, with a governing board and two advisory councils. The Government Advisory Council is particularly important in promoting digital wallets and ensuring interoperability.
At the launch webinar, Visa’s Head of Digital Identity, Marie Ostana, spoke about the need for digital wallets that support interoperability between issuers and wallets and between wallets and verifiers. Holder choice is expected to flow from this, contributing to a highly secure international default technology, especially in Europe, for storing sensitive personal data in compliance with EU regulations.
The Technical Advisory Council of the OpenWallet Foundation is responsible for ensuring that the digital wallets developed under the Foundation's umbrella are secure, interoperable, and accessible to everyone. This includes developing technical standards, overseeing the development of software development kits, ensuring accessibility for users with disabilities, and maintaining a transparent and accessible codebase. The work of the Technical Advisory Council is critical to the success of the Foundation and the development of a more transparent and secure digital wallet ecosystem.
Using open source software in the OpenWallet Foundation ensures the technology is transparent and secure. With open source code, users can view and audit the code for vulnerabilities, essential for maintaining user data privacy and security.
Additionally, open source software can be customized to meet the specific needs of individual users and organizations, making it a highly adaptable solution for digital wallets.
Conclusion
The OpenWallet Foundation is committed to creating a more secure and transparent digital wallet ecosystem. By leveraging open source software, the Foundation ensures that the code for digital wallets is accessible and transparent, enabling greater trust between users and providers. As a result, the Foundation is likely to be a major force in shaping the future of digital wallets, ensuring that they are secure, transparent, and easily accessible to everyone.
The role of the OpenWallet Foundation in the future of digital wallets cannot be overstated. As more and more people turn to digital wallets for their financial needs, these tools must be secure and easy to use. The Foundation's focus on open source software is a step in the right direction toward achieving these goals, and other digital wallet initiatives will likely follow suit.
Launching the OpenWallet Foundation is an important step toward developing a more secure and transparent digital wallet ecosystem. By leveraging open source software and collaboration among various stakeholders, the Foundation lays the groundwork for developing a more secure, transparent, and easily accessible digital wallet infrastructure.